Academia Sinica slashes economic forecast to 1.8%

GROWTH CATALYSTS:The institute called for stronger monetary and fiscal policies, eg, lifting the debt ceiling or using forex reserves to raise infrastructure spending

By Camaron Kao / Staff reporter

Academia Sinica yesterday cut its GDP growth forecast for this year to 1.8 percent from its previous estimate of 2.35 percent made in July, citing weak private investment and exports.

The institute downgraded its forecast on real goods and service export growth this year to 3.02 percent from 4.93 percent because of a slower-than-expected pickup in international trade, stronger competition from China and the slow progress in Taiwan’s efforts to participate in regional economic integration, the institute said in a report.

PRIVATE INVESTMENT

The forecast for annual growth in private investment was also adjusted downward to 5.38 percent from 6.34 percent, following a significant decline in the third quarter, the report said.

The institute’s forecast of 1.8 percent economic growth for this year was slightly higher than the 1.74 percent estimate made by the Directorate-General of Budget, Accounting and Statistics at the end of last month.

For next year, the institute expects annual GDP to expand by 2.89 percent, as the global economy gradually regains its growth momentum.

“Economic growth next year will be steady but tepid,” Academia Sinica economic research fellow Ray Chou (周雨田) told a press conference.

Economic growth in China, Taiwan’s largest export destination, is expected to weaken next year, he said.

“Taiwan needs stronger monetary and fiscal policies to create change, and all government departments should focus more on promoting the economy,” Chou said, adding that the government may consider lifting the debt ceiling or utilizing the nation’s foreign exchange reserves to increase infrastructure spending.

The US Federal Reserve’s tapering remains a risk for the economy next year, Chou said.

EMERGING ECONOMIES

As money flows to the US from other countries, foreign investment in the stock, currency and housing markets especially of emerging economies may be hit, but the extent of the impact is still unclear, Chou said.

With the US government reducing its purchase of 10-year government bonds, long-term interest rates may rise, making mortgage loans more costly and posing a risk to the housing market, Chou said.

Nevertheless, Chou said he remained relatively optimistic about Taiwan, as the nation has ample foreign exchange reserves, which can be used to offset the impact of the money outflow.

Chou said the central bank is unlikely to raise interest rates when it holds its board meeting on Thursday, as the US government has promised to keep its short-term interest rate low until the end of 2015.